In our last post on Synchronized SIM, we noted that you needed synchronized Supplier Information Management software underlying your S2P platform for sourcing success because, without such a platform, you won't have the visibility you need to make good sourcing decisions.
Some of the reasons we gave for this included:
- the need for a complete up-to-date performance picture before awarding a new 2 year, 100M contract, to the supplier,
- the need for up-to-date visibility on financial solvency before making large payments, especially if the goods haven't been delivered.
But these are not the only reasons. Far from it. The need for ever-present, universally accessible, up-to-date 360-degree supplier scorecards -- which can only be realized if the organization has a synchronized SIM platform underlying its entire Source to Pay platform, is so important that we are going to devote another post to it -- because every move you make, and even every breath you take, without visibility can otherwise put the organization at extreme risk.
Let's start with Sourcing.
As per our last post, the last thing you want to do is invite a supplier that might be struggling to an event if you have an early warning sign. Or invite a supplier who still uses restricted materials to an event when there is no need for such materials. Or, even worse, invite a supplier to bid who may be violating human rights.
And even assuming the supplier is not financially struggling, not using restricted materials, and not violating human rights (at least as far as anyone currently knows), that still doesn't mean the supplier is not a risk. Their main production facilities could be near a seismically active spot on the ring of fire. The supplier could be based in a country going through economic turmoil. The supplier could be using suppliers who are very, very risky. And so on.
Don't think that just because the supplier passed all the sniff tests during the invitation and qualification phases, that this means everything is A-OK. The supplier still has to be monitored during the Sourcing event -- be it an e-RFX, eAuction, or multi-round (optimization-backed) Sourcing event.
For example, if the RFX process takes six weeks, during that time the supplier's primary production location could be taken offline by a typhoon. The supplier could try to hide it thinking that they could have it up and running by the time they expect you to need delivery, but you should not only have visibility into how long it will actually take but as to whether or not the surrounding transportation infrastructure has been damaged. If the roads and closest port have been washed out, and those will take months to repair, that could be critical. Could the supplier really serve you indefinitely from a secondary location?
And if the supplier is participating in an auction, you run the risk of an overzealous supplier bidding beyond what they can sustain, and if you don't understand the supplier's cost structure, you can't be sure to set bidding floors that will ensure sustainability if you want the supplier as a viable option.
Let's not forget Contracting.
It's key during contracting to make sure that all relevant risks are addressed. For example, if the supplier relies on a sole source supplier of a raw material and a shortage would prevent the supplier from delivering on your contract, you must have an out clause to cancel the contract or to use a secondary source for as long as needed (with reduced contractual requirements to the supplier for as long as they cannot supply). In addition, you must have the right to audit the supplier's supply chain if there is a chance they use questionable suppliers that could put CSR risks in your supply chain. You must insure you qualify suppliers accurately and insist on sufficient insurance. You must know all regulatory compliance that is required and insure it is in the contract.
And then, once the contract is signed, constant monitoring during execution is key. For example, before a subsequent order is made, it's important to ensure that the supplier is still able to deliver -- to contract. If the last three orders have been late, later, and really late, and the defect rate has gone from 0.1% to 1% to 1.9%, 0.1% away from the maximum allowable rate of 2%, then there is an issue brewing and it's probably not time to put in the biggest order of the year before finding out what is going on -- especially if you could use a secondary supplier and not risk a stock-out during your highest sale season.
Or, if a factory in the north of India just made headlines for exploiting child labour in garment manufacturing and it's a factory known to be used by your supplier, then you want to prevent further orders until you are 100% sure that supplier is NOT using that factory. Otherwise, your organization could be making headlines for exploiting child labour. Not something you want.
You also need constant insight into financial viability. The last thing you want is for the supplier to close up shop with no notice, especially if you are paying on a fixed schedule and not on delivery and acceptance. But if you have a synchronized SIM platform underlying your S2P platform, then you have constant visibility into your supplier's performance with respect to your organization and can access it at any time. But you can also, with subscriptions to the right intelligence platforms, have constant visibility into financial ratings, CSR ratings, risk ratings as a result of potentially impacting events, legal filings, government watch lists, and so on. The value of such visibility cannot be underrated -- the number of supply disruptions as a result of unknown risks in the supply base drops drastically as the organization is considerably more aware of its supply base.
So implement an S2P platform with an underlying synchronized SIM foundation that supports Supplier 360. You won't regret it!